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California "Finance Lenders License" Many Leasing Companies
Not Licensed by California Dept. of Corporations nor do they require brokers to be licensed. Final Word: Joe Bonanno Says--- When is a Lease a Loan? Perhaps there is other criteria regarding usury laws in various
states or having to be licensed to conduct equipment leasing business. For instance, in accounting, if the lessor takes
the depreciation, then the lessor is classifying the lease as an "operating
lease" where they are claiming entitlement to the depreciation
of the asset. If they are not taking the depreciation, then they are "booking" the transaction as a "finance." They are saying the “debtor” is entitled to the depreciation of the asset. It therefore is up to the lessor to defend its position regarding the transaction, as both the lessor and lessee cannot take the depreciation simultaneously. So in reality, in addition to the legal criteria, is there
not the criteria that criteria who is declaring "depreciation" on
the asset one of the definitions to declare whether the transaction is a loan
or a lease?. ------------------------ From: Thomas McCurnin <tmccurnin@bkolaw.com> I don't believe how the Lessee treated the lease has anything
to do with legally whether the lease is a loan. Maybe the argument is by depreciating the asset he is estopped
from claiming it as a true
lease, but it is either a true lease or not. If the focus is on how the lessee treated the lease, then all
leases could be true leases if the lessee simply deducted the payments
and the lessor took the depreciation. This
is subjective, not objective. Use
the Code. I may use my SUV as a truck, but doing so, doesn't make it
a truck. The answer is not opinion. It is fact. It is found in
the Uniform Commercial Code, which defines when is a lease a loan.
It is Section 1-201(36) which provides certain criteria. This section states that if a purchase option is "nominal"
it is a loan. Buck out leases
are loans. Anything below 10%
is a loan. 10% or above are true leases. This section states that if the lease is beyond the equipment's
useful life, it is a loan. So
Five years on a computer might be a loan. If the purchase option is not an option, e.g., the lessee
must (is required) to buy the equipment or release it beyond its useful
life, it is a loan. This is not, in my opinion, subject to interpretation.
One simply reads the definition by Code and looks at the particular
lease. It is really quite easy. It
is lawyers and Courts that make it hard. Regards, Tom McCurnin Barton, Klugman & Oetting Los Angeles, California email: tmccurnin@bkolaw.com Voice:(213) 621-4000 Fax (213) 625-1832 Visit our Web Site at www.bkolaw.com California "Finance Lenders License" The article pertaining to the Commercial Money Center (Wednesday,
March 5, 2003), as not having a California Finance Lenders License
and the potential risks and penalties they now may face was very interesting.
As a Commercial Banker I would be interested in hearing the opinions of you
and any of your readers concerning the necessity of obtaining, or not obtaining,
this License. (Do you need it or not? why? should a Commercial Lender as "Due Diligence" insist that any Brokers they discount deals
for have it? Why not?). Thanks Kit, I always enjoy reading the latest news. Keep
up the good work! Bob Robichaud Lease Finance Officer PFF Bank & Trust Many Leasing Companies
Not Licensed by California Dept. of Corporations nor do they require brokers to be licensed. by Christopher Menkin The response
were due to this request from Bob Robichaud: The article pertaining to the Commercial Money Center (Wednesday,
March 5, 2003), as not having a California Finance Lenders License
and the potential risks and penalties they now may face was very interesting.
As a Commercial Banker I would be interested in hearing the opinions of you
and any of your readers concerning the necessity of obtaining, or not obtaining,
this License. (Do you need it or not? why? should a Commercial
Lender as "Due Diligence" insist that any Brokers they discount deals
for have it? Why not?). Thanks Kit, I always enjoy reading the latest news. Keep
up the good work! Bob Robichaud Lease Finance Officer PFF Bank & Trust Over twenty major funders and outside of California and
five instead of the state did not want to go on the record regarding their requiring a
Finance Lender’s License from their broker, nor comment whether they
had one. Several said after reading the CMC lawsuit where they were
not licensed, and the subsequent lawsuit, they were “looking into it” or “investigating it. This is from the lead attorney in the class action suit: “Brokers are NOT required to have licenses unless the deal
is a consumer deal. Financial Code
Section 22337. But, if the lease
has blanket lien language, there is a statute here which says that it is a
consumer loan. Financial Code Section
22204(b) “So blanket lien in lease? License your brokers. “No blanket lien in lease? Unlicensed brokers are OK. “If lessors on the lease are actually brokers, then they
must be licensed, whether they are the funding source or not. That was CMC's problem, amongst others. “We worked with a woman in the Procopio firm who wrote an
Article for The Secured Lender".
The firm is actually called Procopio, Cory, Hargreaves & Savitch, LLP, and I bet they have a web
site, and I have heard they have the article on their web site. “I think everyone should be licensed. It just makes no sense why one would risk this...” Regards, Tom McCurnin Barton, Klugman & Oetting Los Angeles, California email: tmccurnin@bkolaw.com Voice:(213) 621-4000 Fax (213) 625-1832 Visit our Web Site at www.bkolaw.com In all the legal workshops I attended at United Association
of Equipment Leasing Conferences,
it was drummed into our head that we must have a license... ---and do business only with those who have a license. If
you have salesmen, they must be on the payroll to work under your license if they
do not have one. The reason, if the transaction is considered a finance because
you have the consumer personally guaranteeing the transaction, and are
relying on their person credit and not their business credit to make
a decision, you definitely need a license. If the transaction is really
a loan or finance disguised as a lease, and let's not kid ourselves about this, we aren't talking
about a railcar or sophisticated arrangement, but a small ticket transaction,
you need a license if you are not a bank or other financial institution>regulated
in the State of California. If the lease was assigned to you by a person
or company not licensed, you may be liable for usury and the lease may
be considered not valid---meaning the lessee could not only break the
lease but you could be penalized because you did not have the license. In
addition, there are rules and regulations regarding documentation and other fees, including late charges. While much of the code concerns transactions under $5,000,
there are provisions for commercial loans which may really be “disguised
leases.” So if you don’t want to be sorry, and learn the hard way,
certain states have Finance Laws and you have to abide by them. In California, if you are not licensed, such as a bank or other financial
institution, you must have a Finance Lenders License and do business only with licensed entities. FEW STATE THEY HAVE
LICENSE OR REQUIRE IT--- There were few who wanted to admit they were not licensed nor had a require that they would only do business with licensed leasing companies. No one responded that they required the license to do business with a broker. “We do not require our originators to be licensed in the
State of California. “ Brian Bjella U.S. Bancorp Manifest Funding Services 800-325-2236 (ext 7193) brian.bjella@themanifestgroup.com --- “I responded directly to Bob, but will be happy to repeat. I am far from an expert, but we do not require this license
from our brokers. I believe it is only the funding source that needs
to be concerned about this issue. Of course, we have a license,
and I would recommend anyone else funding deals in CA to have one. (with
the exception of banks, given the exemptions made for banks by
the State). Still trying to get your deal done. I don't know too many
details, but my guys tell me the property has additional encumbrances
that the lessee is trying to clear up. I hope we can get this one done for
you! Thanks again for the business.” David Winick Creative Capital -- Many if not most brokers and lessors in California do not
have a lenders license. The main
reason is that the reporting, record keeping, and fees required to maintain
a license are more than most small brokers and lessors can afford. The State has expressed a de facto understanding
and acceptance of this situation.
Legally any individual or other entity is required to have
the license if they participate in any part of obtaining a loan for
a company that does not employ them.
Whether it is on behalf of the borrower or the lender.
This is very similar to being an unlicensed contractor. The client or the lender can legally deny compensation
or sue for return of compensation and the broker has no recourse because the broker is not licensed to do the work
he is requesting compensation for. To protect themselves
large lenders have established policies whereby an unlicensed broker
is not directly compensated for referring transactions to them. The broker must negotiate his fee outside the
transaction. The one exception is for true lessors. A transaction that actually is a lease not a loan is exempt from this licensing
requirement. The main reason
that so many broker lessors have gotten away with doing $1 purchase
options for so long is that in the beginning these transaction were
for small computer leases that had little or no residual value and the
$1 option leases were a small part of the overall portfolio but as banks
came into the industry as direct lessors and non-recourse indirect funding
sources this practice expanded to all types of equipment. The practice is now a customary and traditional part of the
way leasing companies and funding sources do business and for the most
part supported or at least condoned by the courts and the state agencies. In spite of this my opinion is that if I am a funding source
working with brokers I would want to work lease brokers who are selling
true leases, borrowing from me based on a pledge of the collateral and
an assignment of the stream of payments, and I have a some recourse against
the Lessor for default. Focused on Your Success Michael Jay Rogers American Bank Equipment Leasing, Inc. 921 W. 17th Street Santa Ana, CA 92706 (888) 836-1111 x 101 Fax (714) 836-0871 ---- From: mitchbedke mitch@financecapital.us Subject: Lenders
License Here is the law: CALIFORNIA FINANCE LENDERS LAW The California Finance Lenders Law is contained in Division
9 of the California Financial Code, commencing with Section 22000.
Effective July 1, 1995, the Personal Property Brokers Law, Consumer Finance
Lenders Law, and Commercial Finance Lenders Law were consolidated
without substantive change into the California Finance Lenders Law
(AB 2885, Chapter 1115, Stats. 1994). The regulations under the California
Finance Lenders Law are contained in Chapter 3, Title 10 of the California
Code of Regulations, commencing with Section 1404 (10 C.C.R. =A71404,
et = seq.). Finance lenders and brokers, by number of licensees and dollars
of loans originated, are the largest group of financial service providers regulated by the Department. A finance lender is defined
in the law as "any person who is engaged in the business of making
consumer loans or making commercial loans." A finance lenders license
provides the licensee with an exemption from the usury provision of the
California Constitution. Licensed under the law are individuals, partnerships, associations, limited liability companies and corporations, including many
of the largest "Fortune 500" companies. There are a number of "non-loan" transactions,
such as bona fide leases, automobile sales finance contracts (Rees-Levering Motor Vehicle
Sales and Finance Act) and retail installment sales (Unruh Act),
that are not subject to the provisions of the California Finance Lenders
Law In addition to the lending authority provided by the law,
the California Finance Lenders Law provides limited brokering authority.
A "broker" is defined in the law as "any person engaged in the business
of negotiating or performing any act as broker in connection with loans
made by a finance lender." Brokers licensed under this law may
only broker loans to lenders that hold a California Finance Lenders license. The requirements for a license are set forth in Section 22100,
et seq. of the California Financial Code. The law requires applicants
to have and maintain a minimum net worth of at least $25,000 and
to obtain and maintain a $25,000 surety bond. In general, principals of
the company may not have a criminal history or a history of non-compliance
with regulatory requirements. Mitch Bedke Finance Capital Tel (909) 600-8383 Fax (909) 461-4334 http://www.corp.ca.gov/pub/lender.htm “Finance lenders and brokers, by number of licensees and
dollars of loans originated, are the largest group of financial service
providers regulated by the Department. A finance lender is defined in
the law as "any person who is engaged in the business of making
consumer loans or making commercial loans." A finance lenders license
provides the licensee with an exemption from the usury provision of
the California Constitution. “Licensed under the law are individuals, partnerships, associations,
limited liability companies and corporations, including many of the
largest "Fortune 500" companies. “There are a number of "non-loan" transactions,
such as bona fide leases, automobile sales finance contracts (Rees-
Levering Motor Vehicle Sales and Finance Act) and retail installment
sales (Unruh Act), that are not subject to the provisions of the California
Finance Lenders Law. “In addition to the lending authority provided by the law,
the California Finance Lenders Law provides limited brokering authority.
A "broker" is defined in the law as "any person engaged
in the business of negotiating or performing any act as broker in connection
with loans made by a finance lender." Brokers licensed under this
law may only broker loans to lenders that hold a California Finance
Lenders license.” The January, 2003
California Department of Corporation application asks on page
six: For Brokers License / / Loans will only be brokered to CLF licensed
lenders For Lenders License: / / Source of funds
will be exclusive of any funding advances from an institutional investor
committed to purchasing the note. Exhibit A: Please provide a balance sheet of the applicant
as of a date not more than 90 days prior to the date of this application
, that indicates a minimum net worth of $25,000 (Financial Code Section
22104; the balance sheet may be unaudited.) Exhibit. Please provide a copy of a surety bond, including
any and all riders and endorsements in the amount of $25,000. Instructions
and surety bond from acceptable to the Department of Corporations are
enclosed ( Financial Code Section 22112.) They do ask if you have filed bankruptcy, to list all companies
you have served as an officer or principal, plus all suits that you
were a defendant. They appear to be interest more in “character” than financial
network, but do ask for a “balance sheet.” And you sign the statement this is the truth and it must be notarized Another provision concerns making all “books, accounts, papers,
records and files within 10 calendar days of any request from the commission,”
plus “...agree to pay the reasonable expenses for travel, meals, and
lodging of the Commissioner of Corporations or the Commissioner’s representatives
incurred during any investigation or examination made at the licensee’s
location outside the state. Provide a short description
of your business plan. --------------------- By the way, the cost of the license: $300, includes the processing
fee. Good until revoked or your retire it. Leasing News has asked the Department of Corporation for
their definition regarding those in “equipment leasing;” giving
a definition between a “capital lease,” which basically has a “nominal
purchase option” and a “true lease” which is an operating lease as
generally interpreted by certified public accounts, their accountancy board, and
both the state and federal taxing authorities. Barry Dubin, Esq. at Cooper-White-Cooper knows the difference
as well as Jeffrey Taylor, CPA,CLP. in ten words or less, true or false: License needed for a “finance lease” not a
“real lease.” Let’s see what the California Department of
Corporations will “officially” tell
us. Here is a well-known attorney who has written an article
on the California law. “This is in response to Bob Robichaud's letter to you (March
11, 2003) regarding the California Finance Lenders Law. Bob or others who are interested in this important issue, may want to read an article
I wrote last year, which discussed and analyzed the provisions of the
statute, who should obtain a license and the penalties for failing to obtain
the license if required to do so. The
article was published in the July 2002 edition of LJN'S Equipment Leasing Newsletter.” Michael A. Karpen Jenkens & Gilchrist Parker Chapin LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 Telephone: (212) 704-6149 Facsimile: (212) 704-6288 mkarpen@jenkens.com http://www.leasingnews.org/PDFFiles/E54CCA00.PDF Final Word: Joe Bonanno Says--- “California Broker’s Should Have California Lenders License.” Joe Bonanno, Esq., CLP , Legal Counsel for the National Association of Equipment Leasing
Brokers “I was unable to get back to you when you sent me an email
requesting my opinion about the CA Brokers License. Needless to say, I
agree with my good friend Ken Greene, who is obviously much closer to the issue
than I am.” http://www.leasingnews.org/stories/ken_greene.htm “As I understand the law, the "Justification" for
the license requirement was that it created a class of lenders that are exempt from the
provisions of the CA Usury Statute (and of course, there were exceptions
to the licensing law in the law itself, creating much confusion). However,
in exchange for the exemption, the licensing requirement was imposed. I also understand that the law applies to finance lenders
"engaged in the business of making commercial loans" and that loans
have been defined to include leases intended as security BUT NOT TRUE LEASES. I also understand that there is another provision about CA
law, and this is what makes CA so onerous in my opinion, that equates brokers
to "finance lenders", i.e., makes brokers equal to lending institutions
that have their own money to lend and equates brokers to the lessor in the
transaction. In my opinion, this is the fatal flaw in the CA law. “So, as Ken stated, when you go through the procedure of
the hearing at the state level, best of luck trying to explain to, have an administrative hearing officer/judge understand and getting them to agree
with you that your particular lease is a true lease and you are exempt
from the licensing requirement. You will lose every time, therefore Ken's good
advice is right on point. Don't go through that hassle, just obtain the license. “Interestingly enough in my state of Massachusetts, the same
issue (exemption from the usury statute in a commercial loan setting, but
only in loans that range from 18% - 21%, 21% being the maximum for a commercial
loan) has been addressed in a different way. Rather than imposing a licensing
requirement, the day before the loan documents are signed, the lender
is required to file a notice with the Secretary of State of the existence of
the loan and the interest rate. As long as notice is filed, then the loan
continues to be enforceable and the defense of usury cannot be raised by
the commercial borrower. To me, this is a much easier approach, administratively
and from the perspective of conducting a business, than a licensing
requirement. “A few years back, I had discussions with a CA lobbyist that
was willing to listen to try to do something to have the law overturned
as it pertained to the broker being equated with a direct lender, but the lobbying
costs were very, very expensive. “So for now, I defer to my friend Ken Greene and suggest
that everyone in CA take his good advice.” Joe Bonanno, Esq., CLP Legal Counsel for the National Association of Equipment Leasing Brokers http://www.leasingnews.org/stories/ken_greene.htm
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